Losing an Employee is Hard on a Team (and a Business)
What is the cost of a losing one employee? In concrete terms, according to the Society of Human Resource Management, losing a young professional employee can cost an organization between $15-25,000. However, that is a conservative estimate. If the organization wants to find and train a replacement, that number will increase to 6-9 months of their salary. And, as the professional becomes more skilled and entrenched, that dollar amount grows.
What are the factors or ingredients of the direct loss?
- payout for vacation time
- + payout for unused sick days
- + continued benefits
- + time spent on exit interviews
- + processing time and money
- + severance pay
- + increased unemployment taxes.
What are the additional factors, should you want to replace the individual? Or, the related costs which add to the initial loss?
Total direct loss + replacement cost =
- direct loss cost
- + advertising and/or recruiting costs
- + interviewing costs
- + hiring costs
- + orientation, on-boarding and training
- + lost productivity overall
- + potential customer dissatisfaction
- + reduced or lost business
- + administrative costs
- + lost expertise
- + lost institutional memory (if the person has company historical knowledge)
- + effect on morale
- + decrease in productivity from new hire
- + internal gossip
- + disruption in productivity
- + temporary coverage during replacement
- + allowing for mistakes made by replacement (interim or new).
Also note, the longer the replacement takes – the higher the recruitment costs. If the position isn’t filled within a reasonable time frame, the hiring manager may decide to use additional resources to speed up the process to fill the position ie ads or more ads, an employment firm, etc
In addition, if the employee that leaves represents a community that is within a minority of the organization’s total population, the significance of that loss is exponential in its effect. When a member of a minority community leaves, it’s noticeable by everyone within that community. And, if the loss was a thought leader or role model in their circle, other members of that community may start to feel that the community is not valued by the organization, and may start to put feelers out for a new place to work. Inclusion and appreciation in the workplace is critical to younger professionals to decide where to work and when to exit.
These costs may seem vague or perhaps not of an immediate concern unless you are currently thinking about dismissing an employee, a team member is leaving, or the person you are hiring is a high-risk hire..Why? Because now you have to face the costs, repercussions and disruptions to your daily routine and productivity because of this person. You now feel the pain of the loss.
When you’re not feeling the burn of a loss, many executives and managers don’t think about hiring and turnover costs; they may consider these factors to be like bad debt expense – simply the cost of running a business that every company faces in a general, vague sense.
To estimate of the cost of employee turnover and quantify the value created by reducing turnover at your company use CFO.University’s Cost of Employee Turnover Calculator.
However, think about these numbers:
- 3 million Americans quit their job every month (according to the US Bureau of Labor).
- Nearly 33% leave before 6 months of starting because of poor on-boarding, a lack of clarity around their job responsibilities, or an awful boss (Bamboo HR).
- Over 25% of employees are at high risk for turnover; these are the top performers, those with critical skills and high potentials (research from Willis Towers Watson)
- 93% of younger professionals left their employer to change roles rather than stay (according to a recent Gallup poll
You can see why according to research by Kronos and Future Workplace 87% of Human Resource Leaders consider retention a primary concern. However, why aren’t other executives paying attention? If you could keep the interest of valued employees, wouldn’t that be a worthwhile plan to consider?
For more ideas on avoiding the turnover trap read, Don’t Fall Into the Turnover Trap – Do This Instead
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